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June 24, 2005

Labor vs Marketing

There's a guy somewhere in the 'sphere who calls me a 'cheap labor conservative'. For the most part he's right. I think that the long curve of economic history bends towards cheap labor, not expensive marketing. So those of us who believe in cheap labor are being more realistic.

There are a couple of things that bring me to this point today. The first is what's being said over at Vision Circle about Customer Service. The corollary to 'you get what you pay for' is that you pay more for service. Service sometimes is exactly what you want, sometimes service is part of the 'buying experience'. For example, when I go to Best Buy, I'm the ubergeek. I don't need or want any assistance from the guys wearing the goofy vests. Best Buy gets my money over Costco generally because of selection, but not service. If I want service, I go to The Good Guys or Circuit City and let those guys crawl all over me. But for the most part, all I care about is product. And to be honest, Fry's gets more of my business than Best Buy. The same scenario applies.

Back in January I was buying new business wear for my (planned) trip to China. So for the first time in years I went to Nordstrom. I had a lovely conversation with the woman who helped me pick out shirts. She even had a recommendation on which hotel to pick in Hong Kong. That's what you get for a $60 shirt. (Hey remember The New Retail?) I like the shirts and the service. So I pay more.

The other thing that points me in this direction is thinking about cereal boxes. Of all the things on the planet that any idiot company can manufacture, breakfast cereal has got to be one of those things on the easy side. The next time you are in a supermarket check out the cereal aisle. Pick a box off the shelf. What size is it? If you're like me, you'll notice that it makes no sense whatsoever to sell cereal in quantities of 10.3 oz. No it doesn't round out to the nearest gram either. It's all about the precise size of the box, not the amount of cereal. Our friends at Walmart know everything about product mix, and so cereal manufacturers are allocated very precise amounts of shelf space. They fit the box to the shelf.

Part and parcel of this is what's called 'sensation transference'. Malcolm Gladwell has a nice description in 'Blink' that goes into detail. Suffice it to say that Fruity Pebbles sells because of Fred and Barney, not because of Fruity Pebbles. Anybody can make a fruit flavored corn cereal, but only Kraft can make Fruity Pebbles in the perfect sized box with just the right colors. ($3.99 at Safeway)

When it comes to America's role in the world, we are number one when it comes to Service and Sensation Transference. Both of these things, when they have nothing to do with the actual content of a product, like a shirt, a hamburger or breakfast cereal come under the broad category of Marketing. Sure there are some hella expensive machines that make the full-color process stick onto the kind of cardboard used in cereal boxes, but that means nothing if the characters are Fred and Barney. Safeway's Cocoa Pebbles cost 13 cents/oz. Kraft's Cocoa Pebbles are 31 cents/oz. It ain't just a box.

As a corporate boss, there's only so much labor cost I can squeeze out of the profit equation. If I want my product to survive in the consumer zoo that is America, sooner or later I'm going to have to build brand equity. There's downward limit on how cheaply I can pay workers to increase my profit, but there's a much higher limit on how much I can raise my prices if I spend smartly on marketing. Clearly, there are any number of ways to balance the two, and there are other factors involved but I think it is key, when talking about cheap labor and outsourcing how we are balancing our desires.

Marketing never gets outsourced. It's all about being close to the customer and anticipating their desires. You can't have muslim Arabs selling shoes to American women. It's a cultural impossibility. If you want to sell Coca-Cola to the hiphop generation, you need to hire people who understand hiphop and you need to pay them well. If you want to sell Fruity Pebbles, you need to buy the license for Fred and Barney and you need somebody to write and produce the commercials. That ain't cheap labor. Somebody somewhere is driving an Escalade because they are the voice of Barney Rubble. Only in America.

What I keep trying to explain to folks who think everyone deserves a $350k 1200 square foot house in California is that people are not going to keep paying for Fred and Barney forever. Or will we? The more of our economy which is leveraged on the idea that we will have lots of white collar high paying jobs that come up with clever ideas like Fred & Barney, Star Wars and Reality TV, the more nervous I get.

If you look at the broad range of products available to American consumers as compared to those for the rest of the world, you'll quickly see how deeply engrained is our preference for high-priced, highly marketed products. The rest of the world buys plain wrap, we dig the Fruity Pebbles. Not only that, we buy for the secondary effects as well. We pay for a Nordstrom shirt because the people at Nordstrom dress richly; we like JLo because she drives a Bentley and spends $1000 to get her eyebrows waxed. We watch Morgan Spurlock because he's a TV Star.

We could save trillions of dollars if we eschewed our sophistication. Hell, we could probably feed the world. Alas, we are members of the cult of consumerism and we can't just drink regular coffee or wear $10 shoes or just use black & white lettering in our direct mail advertising. We want American jobs that pay American salaries catering to American tastes with American marketing. All overpriced in relation to the value of the goods and services we get.

I don't know what it's going to take to get us to cheap labor.

Posted by mbowen at June 24, 2005 06:41 AM

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Cobb, you said
We could save trillions of dollars if we eschewed our sophistication. Hell, we could probably feed the world.

If we eschewed those things you talked about we would not have the trillions to begin with so we could not save them. It's all the making, buying, and selling that makes the trillions.

Re the Supreme Court deciding that the government can take private property for "economic development" I was seriously disturbed when I read that. I don't get the liberal rationale for that decision. Property has to be sacrosanct. If you can take my stuff and I can't stop you, I'm not free

Posted by: Anita at June 27, 2005 06:58 AM